What this publication answers
Missouri cooperatives may organize under different state statutes. Chapter 357, known as Cooperative Companies, is one of Missouri’s older cooperative statutes and is especially important for understanding stock-based cooperative structures, including certain agricultural, mercantile, goods, services, and housing cooperatives.
This publication answers four basic questions:
- What type of cooperative is Chapter 357 designed to support?
- Who can be a shareholder or member?
- What requirements are created for voting, board governance, and shareholder control?
- What does Chapter 357 allow—and not allow—when it comes to capital, outside investors, and patronage?
Statutory background
Chapter 357 was originally enacted in 1919. It is one of Missouri’s early cooperative statutes and was adopted during a period when farmers and other groups were organizing collectively to address marketing, purchasing, storage, handling, and related business needs.
Chapter 357 has been amended over time. These amendments and dates matter because they show that Chapter 357 is both a historical cooperative statute and a statute that has been modified at specific points to address cooperative purposes, stock structure, housing cooperatives, and filing-related provisions. Several current provisions are especially important for readers to understand:
- The current authorization section reflects a 1985 amendment and allows 12 or more persons to organize a cooperative association, society, or exchange for producing or furnishing goods, services, or housing, or for conducting agricultural or mercantile business on the cooperative plan.
- The current stock section reflects a 1985 amendment and allows cooperatives organized under Chapter 357 to issue both common and preferred stock.
- A 1998 provision specifically addresses housing cooperatives. It allows five or more persons to organize a housing cooperative under Chapter 357, modifies the stock ownership limit for housing cooperatives, permits housing cooperative bylaws to authorize joint activity with other persons, entities, or organizations, and exempts housing cooperatives from the statute’s restriction on promotion expenses.
- The current incorporation fee section reflects a 2014 amendment that waives certain filing fees when the association includes a qualifying member of the Missouri National Guard or other active duty military who resides in Missouri and provides proof of service to the secretary of state.
Statute summary
Chapter 357 is Missouri’s cooperative company statute. It allows a cooperative to be organized for producing or furnishing goods, services, or housing, or for conducting agricultural or mercantile business on the cooperative plan.
Chapter 357 is broader than a statute written only for agricultural producers. It expressly includes agricultural and mercantile activity, but it also reaches goods, services, and housing. For that reason, Chapter 357 may be relevant to a range of cooperative activities.
Chapter 357 is also a stock cooperative statute. Cooperatives organized under Chapter 357 may issue common and preferred stock. That feature makes Chapter 357 especially important when a group wants a cooperative structure that includes stock ownership. It also raises important questions about who may hold stock, how voting rights are structured, how economic benefits are distributed, and how cooperative control is maintained.
The types of cooperatives and activities Chapter 357 fits
Chapter 357 may fit groups that want to organize collectively to do one or more of the following: produce or furnish goods, provide services, provide or furnish housing, conduct agricultural business on the cooperative plan, conduct mercantile business on the cooperative plan, buy, sell, manufacture, store, transport, handle, or deal in agricultural, dairy, or similar products, manufacture or transform agricultural or similar products into derived products, purchase from or sell to shareholders and others groceries, provisions, or other merchandise.
Chapter 357 may fit a group exploring a stock-based cooperative, a housing cooperative, or a cooperative company with agricultural, mercantile, goods, or services purposes. The statute should be reviewed carefully when the cooperative’s intended activities require broad operating powers, complex entity relationships, or customized capital and governance arrangements.
Formation basics
Chapter 357 generally requires 12 or more persons to organize a cooperative association, society, or exchange. For housing cooperatives, a provision added in 1998 allows five or more persons to organize under Chapter 357.
The articles of incorporation must include the name of the association, the names and residences of the persons forming it, a statement of its purposes, the location of its principal place of business, the amount of capital stock, and the number and par value of shares.
Chapter 357 also requires the articles to be recorded in the office of the recorder of deeds in the county or city where the cooperative’s principal place of business is located. A certified copy is then filed with the Missouri Secretary of State, who issues the certificate of incorporation after receiving the filing and required fees.
The bylaws are important to the operation of a Chapter 357 cooperative. They may address meetings, quorum, proxy and mail voting, the number and qualifications of directors and officers, director and officer duties and compensation, penalties for bylaw violations, restrictions on stock transfer, and the business activities of the cooperative.
Chapter 357 also places an important limit on bylaws: bylaws may not enlarge the powers of the association beyond those allowed by the statute.
Membership: Who can belong?
Chapter 357 uses stock ownership terminology more than membership terminology. The statute refers primarily to shareholders rather than members.
Chapter 357 does not limit participation to agricultural producers. The statute allows cooperatives for goods, services, housing, agricultural business, and mercantile business. As a result, the potential group of shareholders can be broader than under statutes designed only for producer-membership associations.
Chapter 357 is relatively quiet on detailed membership eligibility rules, though such eligibility needs to be addressed in the organizational articles and bylaws. Because Chapter 357 is a stock cooperative statute, organizers and boards should be especially careful to define who may own stock, whether stock ownership is tied to use of the cooperative, whether different types of stock are allowed, and how stock transfers are handled.
Chapter 357 also limits concentration of stock ownership. In general, no shareholder may own shares with an aggregate par value greater than 10 percent of the total par value of all shares of stock in the association. For housing cooperatives, the limit is 20 percent of the aggregate par value of all shares of stock.
The statute also allows common stock to be purchased and owned by another Missouri corporation organized on the cooperative plan, including another corporation organized under Chapter 357.
Member control and voting
Chapter 357 follows a shareholder-control structure, but it includes important cooperative limits on voting. In electing directors, each shareholder has only one vote for each director to be elected, regardless of the number of shares held. This means voting power for director elections is not proportional to the number of shares a shareholder owns.
Chapter 357 also reserves control of organizational policies to the shareholders. Shareholders have direct voting authority over policies that include declaring dividends, setting aside reserve funds, distributing profits, amending articles of association, increasing or decreasing capital stock, and other general policies.
Each shareholder has one vote on these policy issues, regardless of the number of shares owned.
This structure means that Chapter 357 uses stock ownership, but voting is not simply based on the amount of stock owned. That distinction is important for organizers, boards, shareholders, and potential capital providers to understand.
The statute allows votes to be cast in person, by proxy, or by written vote received by mail or messenger for director elections and policy questions.
Board governance and management
A Chapter 357 cooperative is governed by a board of at least five directors. Directors are elected by and from the shareholders, subject to restrictions and qualifications included in the bylaws.
The shareholders may remove a director for cause at a legally called regular or special shareholders’ meeting and may fill the resulting vacancy. If the removed director also holds an officer position, removal from the board also vacates that office.
The officers of a Chapter 357 cooperative include a president, one or more vice presidents, a secretary, and a treasurer. Officers are elected annually by the directors. The president and vice presidents must be directors. The secretary and treasurer do not have to be directors, and the offices of secretary and treasurer may be combined.
Chapter 357 does not contain detailed provisions for professional management or third-party management services. Management and operating authority should therefore be addressed carefully in the articles, bylaws, board policies, and contracts, consistent with the statute.
Ownership, capital, and outside investors
Chapter 357 associations are organized with capital stock. The statute allows cooperatives to issue both common and preferred stock.
Preferred stock may provide a way to raise capital from persons who are not active patrons or ordinary common shareholders. However, organizers should not assume that preferred stock automatically creates the same rights that investor ownership would create in a conventional corporation. Chapter 357’s voting provisions are important: in electing directors, each shareholder has one vote for each director to be elected, regardless of the number of shares held. Shareholders also have one vote on policy issues, regardless of the number of shares owned.
Chapter 357 also places limits on concentration of stock ownership. In general, no shareholder may own shares with an aggregate par value greater than 10 percent of the total par value of all shares. For housing cooperatives, the limit is 20 percent.
As a result, Chapter 357 provides a stock-based capital structure, but capital participation and cooperative control should be understood separately. The rights attached to common stock, preferred stock, and stock transfers should be clearly addressed in the cooperative’s articles, bylaws, and stock terms.
For organizers, the key question is not simply whether capital can be raised. The more important question is what rights capital receives. Voting rights, policy control, transferability, redemption, dividends, and patronage-based benefits all need to be reviewed carefully in the governing documents.
Patronage, marketing contracts, and member benefits
Chapter 357 contains statutory rules for distributing earnings. Shareholders are to apportion earnings by first setting aside at least 10 percent of net profits for a reserve fund until the reserve fund equals 50 percent of paid-up capital stock.
After the reserve requirement is met, shareholders may declare a dividend on paid-up capital stock. That dividend may not exceed 10 percent.
The remaining net profits are then divided by a uniform dividend based on the amount of sales, purchases, or both sales and purchases by those who have done business with the association. If the association is both a selling and productive company, the distribution may be based on both raw materials delivered and goods purchased by patrons.
This structure reflects both capital and use. Capital may receive a limited dividend, but remaining net profits are tied to transactions with the cooperative through sales, purchases, raw materials delivered, or goods purchased.
Chapter 357 also requires net profits to be distributed at least once in each 12-month period at the time and in the manner provided by the bylaws.
Powers and operating authority
Chapter 357 authorizes cooperative activity for producing or furnishing goods, services, or housing, and for agricultural or mercantile business on the cooperative plan. Its purposes clause is broad in some respects because it reaches goods, services, housing, agricultural activity, and mercantile activity.
However, Chapter 357 does not contain a long, detailed powers section. This is one of the statute’s main features for organizers to understand. The statute provides core authorization for cooperative activity, but it is less detailed than some modern cooperative statutes in describing borrowing, subsidiaries, affiliated entities, outside management, and related business arrangements.
The bylaws may describe the business activities of the association and the manner and method of conducting them, either independently or jointly with other cooperative associations or statewide farm organizations. However, the bylaws may not enlarge the powers of the association.
For housing cooperatives, the 1998 housing cooperative provision is broader. It allows housing cooperative bylaws to provide for business activities and the manner and method of conducting them independently or jointly with any other person, entity, or organization.
Meetings, reporting, and tax-related treatments
Chapter 357 does not contain the same express annual meeting language found in some cooperative statutes. However, the bylaws may address the time, place, and manner of calling and conducting meetings; quorum; proxy and mail voting; and the number of directors and director quorum requirements.
Chapter 357 does require annual auditing of the association’s books by competent auditors. The auditor may not be a member or stockholder of the association. The auditor’s report is filed with the secretary and president of the board of directors and may include recommendations for handling the association’s business.
Chapter 357 also restricts the use of funds for promotion expenses. The statute states that none of the funds of an association organized under Chapter 357 may be used to pay expenses for promotion of the organization, such as commissions, salaries, or expenses of any kind. This restriction does not apply to housing cooperatives.
Chapter 357 does not include the same state annual fee and tax provision that appears in some other Missouri cooperative statutes. Because Chapter 357 is a stock cooperative statute, organizers and boards should review its tax treatment carefully with appropriate tax and legal advisors.
The fit of Chapter 357 to common cooperative activities
Chapter 357 may be a good fit when the organization:
- needs or prefers a stock cooperative structure
- purpose involves goods, services, housing, agricultural business, or mercantile business
- wants authority to issue common and preferred stock
- wants shareholder voting that is not based simply on the number of shares owned
- is a housing cooperative
Chapter 357 may be less suitable when the organization:
- needs broad modern powers to form subsidiaries, enter complex entity relationships, or use third-party management
- needs highly customized investor or nonpatron capital rights
- needs more detailed statutory guidance on governance, capital structure, allocations, distributions, and member rights
- wants a multi-stakeholder structure with customized voting, financial rights, and membership classes
- organizers prefer a statute with more explicit modern provisions for operating authority, records, management, and member rights
Questions for organizers, members, and boards
Before organizing under Chapter 357, or when reviewing an existing cooperative’s alignment with the Chapter 357 statute, consider these questions:
- Is a stock cooperative structure important to the organization’s purpose and capital plan?
- Who should be allowed to own common stock, preferred stock, or both?
- Are the cooperative’s voting rules clear, especially the rule that each shareholder has one vote for director elections and policy matters regardless of the number of shares owned?
- Will the cooperative seek capital from outside or nonpatron investors, and if so, what rights will those investors receive?
- Do the articles and bylaws clearly explain stock ownership, stock transfer, valuation, redemption, and shareholder eligibility?
- Does the cooperative need powers that Chapter 357 does not clearly provide, such as broad subsidiary formation, outside management, or complex entity relationships?
- Does the cooperative understand and follow the reserve fund, annual audit, dividend, and profit-distribution requirements?
Bottom line
Enacted in 1919, Chapter 357 is a Missouri cooperative statute that allows cooperative companies to organize for goods, services, housing, agricultural, and mercantile purposes. Its key features are its stock cooperative structure and the authorities it conveys to issue common and preferred stock, permit shareholder voting that is not proportional to the number of shares owned, allow direct shareholder control over policy matters, and its specific rules for reserves, limited capital dividends, and patronage-related distributions.
Its limits are equally important to understand. Chapter 357 does not contain a broad, detailed modern powers section. It may work for some stock-based or housing cooperative structures, but groups that need broad operating flexibility, complex governance rights, customized investor rights, or more detailed capital structures should compare Chapter 357 carefully with other Missouri cooperative statutes.